Reinsurance Focus

New reinsurance-related and arbitration developments from Carlton Fields

BRITISH COURT APPROVES TRANSFER OF REINSURANCE FROM SOMPO JAPAN TO TRANSFERCOM LTD.

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A justice of the UK Companies Court, Chancery Division, recently approved over the objections of policyholder Axa Corporate Solutions Assurance, a scheme under Part 7 of the UK Financial Services & Markets Act 2000 for the transfer of certain insurance business from Sompo Japan Insurance Inc. to Transfercom Ltd. The scheme involved a transfer of predominantly reinsurance contracts made between 1981 and 2003. The contracts suffered from exposure to the September 11, 2001 terrorist attacks and an airplane crash that occurred later that year, and were in run-off since 2003. In sanctioning the scheme, the justice relied heavily on an expert report and determined that the scheme would be fair to the companies’ respective shareholders and the various underlying policyholders. The justice considered, among other factors, the composition of the business to be transferred, the strength of Transfercom and its parent company, National Indemnity Company, the manner in which Transfercom would fund the run-off of the business, and the overall impact on the security of the underlying policyholders that would result from the transfer. In the Matter of Sompo Japan Insurance Inc., [2011] EWHC 260 (Cos. Ct. Feb. 16, 2011).

This post written by Michael Wolgin.

REINSURANCE DOES NOT FALL WITHIN FLORIDA’S COLLATERAL SOURCE RULE

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Cross-motions for summary judgment were denied in Nova Casualty’s federal legal malpractice action against Robert Santa Lucia, which involved the question of whether reinsurance falls within the collateral source rule. Mr. Santa Lucia had been hired to defend Nova’s insured in a personal injury suit brought in Florida state court. In the underlying action, the state court set aside a “high-low” agreement, which led to a million dollar settlement. Thereafter, Nova alleged that Mr. Santa Lucia negligently advised Nova in the negotiation and form of the high-low agreement and ultimate settlement. During the relevant times, Nova had two reinsurance contracts with GMAC Re providing reinsurance immunity. After the settlement, Nova provided GMAC with the required proof of loss and was indemnified for the entire amount above its retention.

Nova and Santa Lucia each filed motions for summary judgment, which were denied. Nova argued that Mr. Santa Lucia’s payment defense was prohibited under Florida’s collateral source rule. The court disagreed, noting that reinsurance was not listed among the collateral sources covered under the statute. Likewise, the court found unpersuasive Mr. Santa Lucia’s argument that GMAC was the real party in interest. The reinsurance contracts stated that GMAC has no right to reimbursement unless Nova succeeds in a claim related to the loss. Nova Casualty Co. v. Santa Lucia, Case No. 09-1351 (M.D. Fla. Mar. 10, 2011).

This post written by John Black.

COURT HOLDS THAT AN ORDER GRANTING A MOTION TO DISMISS IS AN ARBITRATION “AWARD” DESPITE UNRESOLVED PENDING ISSUES

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A state court of appeals held that the an order granting respondent’s motion to dismiss an arbitration on the merits was an “award” within the meaning of the Uniform Arbitration Act of 1975, separate and apart from a “Final Award” issued two months later in which the arbitrator awarded respondent costs and denied its application for attorney’s fees. Respondent filed a motion in court to confirm the order of dismissal and award of costs; claimant opposed and moved to vacate both orders. The trial court held that the dismissal order constituted a distinct “award,” and, accordingly, the statutory thirty-day period to seek vacatur had expired. The appellate court affirmed, likening the situation to litigation in state and federal court, where an order of dismissal on the merits is final and appealable, notwithstanding extant unresolved issues of attorneys fees and costs. One judge dissented, opining that an “award” is an arbitral decision that represents the complete determination of every issue submitted to arbitration, and that the reference to state and federal judicial procedure is inapposite, given that the scope of judicial review of arbitral awards is strictly limited. American Numismatic Assoc. v. Cipoletti, Case No. 09CA2597 (Colo. Ct. App. Mar. 3, 2011).

This post written by Ben Seessel.

BRITISH COURT ANALYZES TRIGGER FOR EXCESS FACULTATIVE REINSURANCE COVER

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A Justice of the UK Commercial Court (Queen’s Bench Division) has issued an opinion as a result of a trial of a “preliminary issue about the proper construction and the operation of an excess reinsurance policy of professional liability insurance, and more specifically about how it is determined whether the “excess point” that triggers the reinsurance cover has been reached.” Teal Assurance Company Limited alleged that its facultative reinsurance agreement with W.R. Berkeley Insurance (Europe) Limited and Aspen Insurance UK Limited covered certain claims arising from the operations of Teal’s insured, Black & Veatch Holding Company (Teal is a captive insurer subsidiary of Black & Veatch, a large international engineering firm), that were in excess of Black & Veatch’s primary layers of professional liability insurance. The primary insurance covered all of Black & Veatch’s claims, geographically, while the excess facultative reinsurance excluded from coverage all American liabilities. The Court held, contrary to Teal’s position, that the order in which claims should be aggregated for purposes of determining when the reinsurance was triggered (and thus, whether any non-American liabilities exceeded the primary layer), should be based on when those liabilities originated, not when they were paid to the policy limits by the primary insurer. Teal Assurance Co. Ltd. v. W.R. Berkeley Ins. (Europe) Ltd., [2011] EWHC 91 (Comm. Ct. Jan. 31, 2011).

This post written by John Pitblado.

NEW JERSEY ENACTS REINSURANCE COLLATERAL REDUCTION PROGRAM; FLORIDA APPROVES ANOTHER BERMUDA REINSURER FOR ITS PROGRAM

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The New Jersey Governor has signed into law a new bill that creates a reduced collateral reinsurance program similar to those enacted by Florida and New York. The new law, A2670, permits the posting of less than 100% collateral if the reinsurer meets certain financial and regulatory standards. A summary of the new bill is available.

Meanwhile, the Florida Office of Insurance Regulation has authorized another Bermuda-based reinsurer to operate in Florida with reduced collateral requirements. A Consent Order was entered approving Montpelier Reinsurance Ltd. for the program, and the OIR issued a press release announcing the agreement.

This post written by Rollie Goss.